There are two main ways of making steel: an electric arc furnace or a blast furnace. The electric arc furnace (EAF) uses scrap steel and puts an electric current through it to heat it to the point at which it melts. The blast furnace (or basic oxygen furnace, BOF) fires coal that melts the iron out of iron ore. In both processes, the molten metal is tapped off and processed into slab.

Both routes, if I understand the position correctly, can produce high quality steel.

Mr Gupta, the potential purchaser of Port Talbot, wants to convert it from BOF to EAF. Instead of using about a tonne of coal to make a tonne of steel in a BOF and about 0.15 MWh of electricity, Gupta wants to use about 0.45 megawatt hour of electricity (and no coal) in an EAF. (These figures are from http://www.steelonthenet.com/cost-eaf.html)

What is the CO2 impact? A tonne of coal burnt in a blast furnace produces mostly carbon monoxide. That gas is usually then combusted in air to make CO2. (Competitor Arcelor Mittal is working with US/NZ company LanzaTech to use the carbon monoxide as a feedstock for bugs that convert it to useful liquid fuels but worldwide conversion is some decades away).

A tonne of hard coal produces about 3.5 tonnes of CO2. At today’s average CO2 intensity, 0.15 MWh of electricity used in a BOF adds another 0.06 tonnes to this. So a BOF adds just over 3.5 tonnes of CO2 to the atmosphere for each tonne of new steel produced.

An EAF adds less than 0.2 tonnes of CO2 to the atmosphere for each tonne of steel produced.

Switching from BOF to EAF will save over 3 tonnes of CO2 for each tonne of steel. The UK has produced an average of about 7 million tonnes of BOF steel over the last few years. A complete change to EAF could reduce UK emissions by up to 20 million tonnes, or just under 5% of the total.

Does the UK have enough scrap to provide for a EAF at Port Talbot? Yes it does; Mr Gupta says that 7m tonnes is exported to EAFs elsewhere each year. His logic is that it makes more sense to process the scrap in the UK than ship to a EAF elsewhere in the world and then import the resulting steel. Whether he is right or not depends on the costs of making EAF steel here, including electricity charges, compared to elsewhere.

Electricity prices

Why, if energy prices are said to be a major barrier to steelmaking in the UK, would Mr Gupta want to triple the amount of electricity he uses per tonne of steel from today’s BOF levels?

Firstly, electricity isn’t a hugely important part of the cost of EAF steel. 0.4 MWh of electricity might cost £35 at today’s prices, or even slightly less. The value of a tonne of steel is, if I have researched correctly, about £300. Although power costs are not irrelevant, the cost of the scrap metal is a far more important element than electricity.

More importantly, perhaps, Mr Gupta’s family companies are developing a variety of new renewable sources that might supply Port Talbot. These include, as has been widely mentioned, the tidal lagoon at Swansea, just down the cost. Other new sources of electricity include from biomass from the Uskmouth coal plant near Newport on the Severn Estuary and the various other technologies being planned at the green energy hub next to Uskmouth. These include pyrolysis of waste, fuel cells and solar.

So Port Talbot seems to be part of a big plan to create electricity using renewable technologies and then exploit it in an EAF. This sounds rational at first. But none of the energy technologies being developed by Gupta businesses are yet competitive with today’s wholesale price of power. We know, for example, that the tidal lagoon company is asking for a power price at least as high as Hinkley Point.

Unless the government goes along with Mr Gupta and agrees to subsidise his chosen renewables, the price of power at a Port Talbot EAF will be higher than today. I can see no sign that the Energy Secretary will have any interest in putting in place agreements to give Port Talbot cheap power from renewable sources.

Nevertheless, this is a debate the UK should be having. Does it make sense to try to build leadership in technologies such as lagoons and pyrolysis at the same time as keeping open a lower CO2 EAF in a part of the country that needs the jobs that steel provides? I think the question is far more finely balanced than the market fundamentalists believe.